representing homeowners

Mortgage Servicing Problems Are Not Fixed, Despite Propaganda

Yves Smith at Naked Capitalism has another good post on the mortgage servicing failures of the last few years:

It sometimes feels like a Sisyphean task to keep discussing how Americans were thrown under the bus in the various mortgage settlements reached in 2011 and 2012. The mortgage-industrial complex was deemed too big to fail and as a result, malfeasance and fraud were deemed to be mere “errors”, offensively low damages were paid, and the banks were told to adhere to current law, with a few new requirements thrown in (single point of contact, ending dual tracking, and processing modifications in a timely manner). Far more meaningful reform has occurred in states like California that offer stronger protections under newly-passed homeowner bills of rights.

The reason far more serious remedies needed to be implemented was that mortgage servicers have never had the systems in place to handle more than a trivial level of delinquent mortgages. Servicing delinquent mortgages well, or even adequately, and processing modifications is a high-cost, high touch operation, while servicing mortgages that are being paid on time is a factory: highly routinized, high volume, low cost. The only way to get servicers to invest in staff and systems to service delinquent mortgages and process mods properly would be to put a very big boot on their neck. And that never happened.

As, we need to belatedly stop and take note of the latest “nothing to see here” effort by the Administration with the issuance last week of the latest report of the monitor of the national/49 state settlement entered into in early 2012. The media made much of the fact that the large servicers had satisfied most of their financial requirements. Um, that wasn’t that hard, since the cash component was a steal. As we wrote last November:

As we and others have written at considerable length, the mortgage settlement was a big exercise in optics. The $26.1 billion number sounds impressive until you compare it to the size of the housing market and the damage done to homeowners. 40% of the value of the settlement can come from junk credits, things the banks would have done anyhow or should be doing in the normal course of business, like razing vacant homes, short sales, and giving homes to charities. And of the remaining part, which was a relatively small amount of actual cash payment ($5.8 billion, but that included over a billion of fines federal regulators rolled into that total), the rest is supposed to be reduction of mortgage principal. Oh, but wait, they can take credit for modifying OTHER PEOPLE’S MORTGAGES, meaning those owned by investors. And they’ve been doing that in more than half the cases.

The other bit, which Abigail Field dissected at length, is that the settlement also institutionalized fraud by allowing astonishingly high error rates in the various metrics, typically 5%. How would you feel if your bank or credit card issues was allowed to have a 5% error rate?